Compliance Bulletin

Federal Reserve Clarifies Regulation DD Overdraft Disclosure Rule
June 2, 2010

The Federal Reserve Board released a final rule (“Rule”) clarifying its previously issued revisions to Regulations DD (finalized in January 2009) related to the disclosure of overdraft fees in periodic account statements. Regulation DD and the official staff commentary are revised to address the application of the Rule to retail sweep programs, clarify the terminology for overdraft fee disclosures, and to make conforming amendments.

New §230.6(a)(5) states that the aggregate fee disclosures required by §230.11(a)(1) are among those required on periodic statements. Section 230.11(a)(1)(i) and (ii) require institutions to disclose fees for paying overdrawing items, and fees for returning items unpaid, respectively. The Rule revises (i) to clarify that the periodic statement aggregate fee disclosure must state the total dollar amount for all fees or charges imposed on the account for paying overdrafts, using the term “Total Overdraft Fees.” The term is intended to include overdraft fees, any additional daily or sustained overdraft, negative balance, or similar fees.

The Rule also revises comment 6(a)(3)-2 to eliminate the reference to the promotion of the payment of overdrafts because the Regulation DD final rule extended the aggregate fee disclosure to all institutions (at the time a distinction was made between institutions that did and did not promote their overdraft programs). Section 230.6(a)(5) provides that the aggregate fee disclosure is required on periodic statements “if applicable,” because §230.11(a) does not require the disclosure when a consumer has not incurred any overdraft fees for the calendar year-to-date.

Section 230.11© requires institutions to disclose a balance that does not include additional amounts to cover an item when there are insufficient in the account. In response to inquiries from the industry, the Board is adding new comment 11(c)-2 to clarify that a transaction account balance disclosure may include a consumer’s funds that may be transferred from another account pursuant to a retail sweep program. In its preamble to the Rule, the Board states that funds in other types of accounts (such as an investment sweep account) that share the same characteristics of a retail sweep program may also be included in the balance disclosure.

The rule also makes minor conforming revisions, including changes to provisions that applied when a customer “opts out” of overdraft services under Regulation E (which has since been amended to establish an “opt-in” requirement).

Section 230.11(a)(1)(i) (pertaining to the use of the term “Total Overdraft Fees”) is effective October 1, 2010. The Board’s Regulation DD January 2009 final rule issued was effective January 1 this year. Click here for a link to the Rule.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

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